Ando, who was crowned women's champion on her home ice in Tokyo in 2007, trailed Olympic champion Kim by less than half a point after Friday's short program, but earned 130.21 points for her free skate to clinch gold at Moscow's Khodynka arena.
Kim had to settle for silver after making several errors during her free routine. She received 128.59 points, some 22 points shy of her record score when claiming the Olympic gold in Vancouver last year.
Italy's 2010 European champion Carolina Kostner, who was sixth going into the free skate, capitalized on her rivals' mistakes to snatch the bronze medal.
Asada, who beat Kim to win gold at last year's worlds, had a disappointing championships and, after a seventh-place finish on Friday, could move up only one spot to sixth.
Asked to compare her two titles, Ando said: "Four years ago I didn't have any idea of any medal. I had a serious injury then and I didn't skate for two weeks. I just did my job and won the gold."
The modest 23-year-old said she was not totally satisfied with Saturday's performance.
"I wasn't perfect today, I had some small mistakes and I didn't have enough speed," she told a news conference.
"But still, I'm so happy to win this gold medal. I did it for myself and for Japan," she said, referring to last month's devastating earthquake and tsunami in her home country that forced the championships to be moved from Tokyo to Moscow.
Kim, dubbed "Queen Yuna" at home after her Olympic win, had to overcome personal problems on her way to the silver medal.
"I'm very happy with this medal because I've had the hardest time in my life after the Olympics," said the 20-year-old, who briefly considered retirement after being upstaged by Asada in Turin before changing her mind, and who fired her Canadian coach Brian Orser last August.
"I was thinking what to do next. Then I started skating again but mentally it was very difficult.
"Now, I can go home, relax and do my shows," added the South Korean, who cried on the podium.
"I don't know why but I just started crying, maybe because the season is over."
Kostner, who edged out home hope Alena Leonova in the battle for third, was asked to explain her generous marks despite a number of mistakes.
"I'm just the skater; you have to ask the judges who give out the marks," said the 2008 world silver medalist.
